Conflicts of Interest The UK Perspective by jolinmilioncherie

VIEWS: 0 PAGES: 19

									                        Conflicts of Interest: The UK Perspective


Regulation of lawyers in England is carried out by the Solicitors’ Regulation Authority -
commonly called the SRA. The SRA was set up by the Law Society in 2006 and the Law
Society still sets the SRA’s budget. Although not a government body, the members of the
SRA are appointed (rather than elected) by an independent body and, from 2010 will be
subject to oversight from the newly constituted Legal Services Board – whose members
are appointed by the Lord Chancellor – a political post.


In a time of massive change in the regulation of the English legal system, the debate
about a common code of practice for the legal professions of Europe is of particular
importance. Some of you may have seen the consultation issued by the SRA concerning
amendments to the rules on conflicts of interest. This is a very contentious issue in
England and it is not the first time that the regulatory rules have been debated.


At this point, I should clarify that the issue under debate is the regulatory regime
concerning conflicts of interest. The law in England, as it relates to conflicts of interest,
can only be changed by legislation and can be expressed as follows:-


“A [lawyer] cannot act at the same time both for and against the same client, and his
firm is in no better position. A man cannot without the consent of both clients act for one
client while his partner is acting for another in the opposite interest. His disqualification
has nothing to do with the confidentiality of client information. It is based on the
inescapable conflict of interest which is inherent in the situation.”


                                        Lord Millett – Bolkiah –v- KPMG [1999] 2 AC 222


Notwithstanding that this case was brought by a notorious playboy who allegedly treated
an airline as his private plaything, it was heard by the House of Lords, the UK’s highest
court, and is therefore binding on all other courts and tribunals in the UK. Of course, the
House of Lords would not be swayed by a bit of scandal!
There is, of course, a fundamental difference between the law and the regulatory regime.
The regulatory regime allows the SRA to take action against solicitors for acting in
breach of the rules whether or not the client has complained and provides a non-judicial
avenue to make a complaint; the common law gives an individual client the right to
challenge his solicitors in court and, if necessary, prevent them from acting for a third
party.


The most recent (and high profile) example of this in the UK was the case of Marks and
Spencers Plc –v- Freshfields Bruckhaus Derringer. The case concerned an attempted
hostile takeover of Marks & Spencer by a consortium led by the entrepreneur Philip
Green. Freshfields had acted for Marks and Spencer in some non-contentious transactions
and it maintained that there was no conflict of interest if it acted for Mr Green’s
consortium, or, if there was, it could be managed so as not to risk client confidentiality.
Marks and Spencer disagreed and sought an injunction preventing Freshfields from
acting for Mr Green’s consortium.


There are those who consider that the litigation was tactical, designed simply to delay the
attempt at hostile takeover and that Marks and Spencer would not have objected but for
the opportunity to derail the bid – which ultimately worked. In any event, the Court of
Appeal upheld Marks and Spencer’s position and refused an appeal against the
injunction.


It is perhaps interesting that the case was brought by a sophisticated corporation with
access to vast resources – including advice from one of the largest law firms in the UK -
against another of the largest law firms in the UK and was strongly contested on both
sides. It may be reasonable to assume therefore that the question “what is a conflict of
interests?” is harder to determine in practice than it first appears. The Court of Appeal
had no hesitation in finding that there was a conflict of interests however Freshfields and
those advising them obviously felt that there was none at the time.
In this case, the SRA reviewed the finding of the Court and issued disciplinary
proceedings against the solicitor involved. He was ultimately fined £9,000 and ordered to
pay £50,000 in costs. But for the Court action, it is unlikely that the SRA would ever
have identified an issue or taken any action in this particular case. That said the SRA
does frequently investigate allegations of conflicts of interest. The more serious
allegations usually relate to a conflict between the interests of the solicitor and their own
client but such allegations can take many forms and often, the client may have been
wholly unaware that the solicitor was acting improperly.


It is this general imbalance of power and knowledge between lawyers and their lay clients
which has led the SRA to impose more restrictive rules in an effort to ensure that lawyers
do not take unfair advantage of their clients.


These more restrictive rules are not without difficulty, notwithstanding that, in their
current incarnation, they have only been in force for around four years and there is an
ongoing debate, driven principally by “City”1 firms (such as Freshfields) concerning
whether our regulator’s conflict of interest rules should be relaxed – yet again. Some of
you may have seen the SRA’s consultation on the subject. Indeed, at the beginning of
September, the SRA published an analysis of responses confirming that the rules would
be amended. We await with eager anticipation the SRA’s proposals for the amendments
and the further consultation on the draft rules, due to be issued in autumn 2009.


It is perhaps helpful at this stage to sound a note of caution; lessons from the past have
shown that there are real risks in relaxing rules relating to conflicts of interest. The two
most striking examples are in relation to the sale and purchase of property and referral
fees. You should be aware that the legal aspects of property transactions are usually
handled by solicitors.


It has been permitted for a solicitor to act for both the buyer of a property and the
mortgage lender for many years. There are a number of safeguards in place, including the

1
    large, mainly multinational firms which act for large corporate clients
requirement to comply with the requirements of a set of standardised instructions, called
the Council of Mortgage Lenders’ Handbook. The current recession (and indeed, the
recession in the early 1990s) has thrown into sharp relief the problems of mortgage fraud.
In many instances, mortgage fraud has been allowed to occur because a solicitor fails to
recognise his obligations to disclose relevant information to lender clients. This failure is,
of course, very bad news for the reputation of our profession when the issue of fraud hits
the headlines.


It can be said that there are strong commercial reasons for permitting solicitors to act for
both lender and purchaser because it ultimately reduces the cost to the purchaser by
cutting out one set of legal fees. One must however ask whether the profession should
yield to commercial pressure to waive, amend or reduce professional obligations. Is it not
the case that our collective reputation suffers – and costs to the consumer are ultimately
increased – by the opportunities for fraud or error? It is, of course, a regulator’s
invariable response to large scale issues of fraud, that regulation should be increased.
There should be more oversight and more rules and the costs of compliance are thus
increased – and passed on to the consumer.


The same sorry story is true of the relaxation of rules relating to the referral of clients and
payment of referral fees. The rules were relaxed five years ago and already a massive
referral industry has been created, covering many areas of law. Personal injury is by far
the largest target and the so-called “claims farmers” have certainly done their bit for the
reputation of the profession. Solicitors do, of course, have an interest in keeping the
referral company happy; is this interest consistent with their duties to clients? Sometimes,
the answer will be a resounding yes but there is a real and increasing risk that
overreliance on referral companies will lead to a serious conflict of interest arising.


As I have already said, the regulator’s rules as they currently stand are more stringent
than the common law rules and it is a disciplinary matter if they are contravened. In the
event that a client complains to the Legal Complaints Service, there is also a statutory
power for the Legal Complaints Service to award some compensation. There is, of
course, the problem that many clients would not recognise a conflict of interest and
would not know that they had a right to complain.


I have provided a copy of the current rules, in their entirety, as an attachment to this
speech. I am quite sure that we have better things to discuss today than simply repeating
the rules (which are likely to be amended soon in any event). You can see that the basic
rule in respect of conflicts of interest is not to act where:-


    a) you are acting for another client with conflicting or potentially conflicting
        interests; and
    b) your interests (or those of your firm) are or may be in conflict with the interests of
        your client.


This basic rule is subject to several exceptions, all of which require that certain
conditions are met and that the clients all consent in writing to you acting. The most
common exception relied upon is where you are acting for two clients who have
“substantially common interests.” This would cover situations where, for example, you
are asked to advise both clients on a joint venture and its potential ramifications. It may
also cover advising joint claimants or defendants in litigation in some circumstances.


It is important to note that, where a solicitor is relying on an exception to the duty not to
act, it must be reasonable in all of the circumstances for him to act. The SRA will expect
the solicitor to demonstrate that he can act for both clients properly, without fear or
favour affecting his advice to either one. There is also a continuing requirement to ensure
that it remains reasonable for the solicitor to act throughout the retainer.


The new rule is widely anticipated to have a broader exception, to permit firms to act
where there is or may be a conflict of interest provided the clients are “sophisticated” and
have consented to the firm so acting. There is likely to be substantial debate about the
definition of “sophisticated client.” As matters stand, the definition of sophisticated client
is likely to be limited to clients with their own in house legal departments or those who
have taken independent legal advice before confirming that they will waive the conflict.
There is also clear scope for clients to argue about the consent that they have given.
There may be difficulties regarding clients claiming, for tactical reasons, that the consent
was given based on a misunderstanding or mistaken information and should be
withdrawn. It is my view that there is a potential minefield for solicitors here and it
remains to be seen how the SRA will address the issues in the draft rules.


It is likely that the English authorities will continue to interpret any amendments to the
rules in favour of the client. The courts take the view that the rules are there for the
protection of clients and solicitors should not be able to get around the substance of the
rules by focussing on a strict interpretation of the wording. The courts consistently
emphasise that a solicitor’s duty to act in the best interest of his client is second only to
the solicitor’s duty to the court and to maintaining the rule of law. Against this
background then, it is likely that solicitors will have to demonstrate that they have
explained, in some detail, the potential ramifications of their acting in a situation of
conflict. I suspect that a failure to fully explain the nature and effect of a potential
conflict of interest will lead to any written consent being set aside.


Turning now to the potential sanctions for acting where there is a conflict of interest, it is
of note that most cases involving conflicts of interest referred to the Solicitors
Disciplinary Tribunal fall into one of four main categories:-


   1. The solicitor has acted for both purchaser and mortgage company in a property
       transaction and has failed to inform the mortgage company of a potential conflict
       of interest;
   2. The solicitor has acted for a client where he (the solicitor) is the other party so, for
       example, a solicitor takes a loan from a client or buys a property from or sells a
       property to a client;
   3. The solicitor has acted for a client where he has a personal relationship with a
       third party interested in the transaction in one way or another; for example,
        referring a client to a family member who is perhaps a barrister, or acting for a
        client where a family member is the other party to the transaction;
   4.   The solicitor has entered into a referral arrangement with a third party which may
        compromise his ability to advise the client independently or put confidential
        information at risk.


It is uncommon for solicitors to be wholly prevented from practising, either permanently
or temporarily, because they have acted in a situation of conflict of interest on a one off
occasion, although such conduct is regarded as serious. That is not to say it is not
possible, particularly where the conduct is deliberate or grossly improper. The position
tends to be addressed by the imposition of a reprimand or fine, depending on
circumstances and it is possible that a solicitor may have conditions imposed on his or
her practising certificate. Repeated or deliberate infractions would be likely to lead to a
more serious sanction.


I should mention at this stage that the SRA is going to be given new powers to publicly
fine and rebuke solicitors for misconduct directly. At present, the SRA’s disciplinary
powers are limited to internal sanctions and all formal powers are exercised by the
Solicitors Disciplinary Tribunal. The changes are designed to increase proportionality
and reduce the cost of prosecuting misconduct at the lower end of the scale. It is likely
that many of the less serious allegations of conflict of interest will be dealt with in this
manner in the future.


The question of publicity is a thorny one. Any public rebukes or fines issued by the SRA
– which will be issued without a formal hearing – will be published on the SRA’s fully
searchable database for a default period of three years unless the solicitor can
demonstrate that they should not be published – no easy task, I assure you. Publicity is
consistent with the SRA’s new publicity policy. It is their view that transparency in
regulation requires that disciplinary decisions be published, save in exceptional
circumstances. I must confess that I do not share the SRA’s view on this point, either in
principle or in practice – but that is a debate for another day.
On a slightly separate point, the question of publicity is relevant to all lawyers wishing to
practise in the UK. Any Registered European Lawyers or Registered Foreign Lawyers
effectively submit to the jurisdiction of the SRA and, of course, the searchable database is
online and is searchable from anywhere in the world. It may be the case therefore that
foreign lawyers who work in England and are found to have breached the rules will be
the subject of adverse publicity in their home bar notwithstanding that the rules of their
home jurisdiction would not have been infringed. These are, I believe, serious issues
facing the legal profession in the UK at present.


At this stage, I would like to say a few words about client confidentiality. In many ways,
confidentiality is one of the overriding concerns when considering conflicts of interest
and many of my earlier comments may be taken simply to include client confidentiality
as an element to consider in the wider context of conflicts of interest.


It must be emphasised though that client confidentiality is a distinct duty owed by every
solicitor to each of his clients. A solicitor also owes a duty to each client to inform them
of relevant information which comes to that solicitor’s personal attention, no matter the
source. It is easy to see how these duties might conflict when advising clients in
situations of an actual or potential conflict of interest. The current rules make it clear that
the duty of confidentiality is paramount but it is likely that the solicitor affected would
have to cease acting for one or both clients as he can no longer fulfil his competing duties
to both.


In summary then, I think it is fair to say that a solicitor who acts where there is a conflict
of interest is potentially in grave professional danger. Although there are situations where
it is permissible to act in circumstances of a conflict of interest, there are numerous
difficulties, particularly if matters become contentious.


There are calls for relaxation of the rules and these calls are likely to be followed. My
perhaps somewhat cynical opinion is that this will only lead to more complex rules which
are more open to abuse. I am guessing that we will have to wait some time before the true
effect of the changes becomes clear.




                                                                         Susanna Heley
                                          City of Westminster & Holborn Law Society
                                                                  RadcliffesLeBrasseur
                                                                 5 Great College Street
                                                                                London
                                                                              SW1P 3SJ
                                                   ANNEX 1

    Rule
    3.01 Duty not to act

          (1)   You must not act if there is a conflict of interests (except in the limited
                    circumstances dealt with in 3.02).

          (2)   There is a conflict of interests if:

    o                (a)  you owe, or your firm owes, separate duties to act in the best interests of
                     two or more clients in relation to the same or related matters, and those duties
                     conflict, or there is a significant risk that those duties may conflict; or
    o                (b) your duty to act in the best interests of any client in relation to a matter
                     conflicts, or there is a significant risk that it may conflict, with your own
                     interests in relation to that or a related matter.

          (3)   For the purpose of 3.01(2), a related matter will always include any other matter
                     which involves the same asset or liability.

    3.02 Exceptions to duty not to act

          (1) You or your firm may act for two or more clients in relation to a matter in situations
           of conflict or possible conflict if:
    o              (a) the different clients have a substantially common interest in relation to that
                   matter or a particular aspect of it; and
    o              (b) all the clients have given in writing their informed consent to you or your
                   firm acting.

           (2) Your firm may act for two or more clients in relation to a matter in situations of
    conflict or possible conflict if:

    o                (a)
                      the clients are competing for the same asset which, if attained by one client,
                  will make that asset unattainable to the other client(s);
    o             (b) there is no other conflict, or significant risk of conflict, between the interests
                  of any of the clients in relation to that matter;
    o             (c) the clients have confirmed in writing that they want your firm to act in the
                  knowledge that your firm acts, or may act, for one or more other clients who are
                  competing for the same asset; and
    o             (d) unless the clients specifically agree, no individual acts for, or is responsible
                  for the supervision of, more than one of those clients.
          (3) When acting in accordance with 3.02(1) or (2) it must be reasonable in all the
           circumstances for you or your firm to act for all those clients.

          (4)   If you are relying on the exceptions in 3.02(1) or (2), you must:

    o                (a) draw all the relevant issues to the attention of the clients before agreeing to
                     act or, where already acting, when the conflict arises or as soon as is reasonably
                    practicable, and in such a way that the clients concerned can understand the
                    issues and the risks involved;

o                   (b) have a reasonable belief that the clients understand the relevant    issues; and
o                   (c) be reasonably satisfied that those clients are of full capacity.

    3.03 Conflict when already acting

    If you act, or your firm acts, for more than one client in a matter and, during the course of
    the conduct of that matter, a conflict arises between the interests of two or more of those
    clients, you, or your firm, may only continue to act for one of the clients (or a group of
    clients between whom there is no conflict) provided that the duty of confidentiality to the
    other client(s) is not put at risk.

    3.04 Accepting gifts from clients
    Where a client proposes to make a lifetime gift or a gift on death to, or for the benefit of:

          (a) you;
          (b) any manager, owner or employee of your       firm;
          (c) a family member of any of the above,

    and the gift is of a significant amount, either in itself or having regard to the size of the
    client's estate and the reasonable expectations of the prospective beneficiaries, you must
    advise the client to take independent advice about the gift, unless the client is a member of
    the beneficiary's family. If the client refuses, you must stop acting for the client in relation to
    the gift.

    3.05 Public office or appointment leading to conflict
    You must decline to act where you, a member of your family, or a manager, owner or
    employee of your firm holds some public office or appointment as a result of which:

          (a) a conflict of interests, or a significant risk of a conflict, arises;
          (b) the public might reasonably conclude that you, or your firm, had        been able to make
    use of the office or appointment for the advantage of the client; or
           (c) your ability to advise the client properly and impartially is inhibited.

    3.06 Alternative dispute resolution (ADR)

    If you provide ADR services you must not:



    o               (a) advise or act for any party in respect of a dispute in which you or any person
                    within your firm is acting, or has acted, as mediator;
    o               (b) provide ADR services in connection with a matter in which you or any
                    person within your firm has acted for any party; or
    o               (c) provide ADR services where you or any person within your firm has acted
                    for any of the parties in issues not relating to the mediation, unless that has been
                    disclosed to the parties and they consent to your acting.

    3.07 Acting for seller and buyer in conveyancing, property selling and mortgage related services

          (1) Rules 3.07 to 3.15 apply to the transfer of land for value, and the grant or
           assignment of a lease or some other interest in land for value. Both commercial and
           residential conveyancing transactions are covered. The terms "seller" and "buyer"
           include a lessor and lessee. "You" is defined in 23.01, but is to be construed in 3.07 to
           3.15 as including an associated firm (see rule 24 (Interpretation) for the meaning of
           "associated firms").
          (2) You must not act for more than one party in conveyancing, property selling or
           mortgage related services other than as permitted by, and in accordance with, 3.08 to
           3.15. "Property selling" means negotiating the sale for the seller. "Mortgage related
           services" means advising on or arranging a mortgage, or providing mortgage related
           financial services, for a buyer. "Mortgage" includes a remortgage.


    3.08 Conveyancing transactions not at arm's length

    Subject to the prohibition in 10.06(3) and 10.06(4), you may act for seller and buyer when
    the transaction between the parties is not at arm's length, provided there is no conflict or
    significant risk of conflict.

    3.09 Conveyancing transactions at arm's length

    Subject to the prohibition in 10.06(3) and (4), you may act for seller and buyer if the
    conditions set out in 3.10 below are satisfied and one of the following applies:


o                  (a)   both parties are established clients;

    o              (b) the consideration is £10,000 or less and the transaction is not the grant of a
                   lease; or
    o              (c) seller and buyer are represented by two separate offices in different
                   localities.

    3.10 Conditions for acting under 3.09

    In order to act for seller and buyer under 3.09 above, the following conditions must be met:


o                  (a) the written consent of both parties must be obtained;
o                  (b) no conflict of interests must exist or arise;
o                  (c) the seller must not be selling or leasing as a builder or   developer; and

    o              (d) when the seller and buyer are represented by two separate offices in different
                   localities:
                           (i) different individuals authorised to do the work, who normally work
                            at each office, conduct or supervise the transaction for seller and buyer;
                            and
                           (ii) no office of the firm (or an associated firm) referred either client to
                            the office conducting the transactions.

    3.11 Property selling and mortgage related services

    Subject to the prohibition in 10.06(3) and (4), you may act for seller and buyer if the
    conditions set out in 3.13 below are satisfied and one of the following applies:


    o                (a) the only way in which you are acting for the buyer is in providing mortgage
                     related services; or
    o                (b) the only way in which you are acting for the seller is in providing property
                     selling services through a Solicitors' Estate Agency Limited (SEAL).

    3.12 SEALs and participating firms

    A SEAL means a recognised body which:


o                    (a) is a company;
o                    (b) does not undertake   conveyancing;

    o                (c) is owned jointly by at least four participating firms which are not associated
                     firms;

o                    (d)   has no participating firm with majority control;

    o                (e)  has at least one participating firm which is a recognised body or recognised
                     sole practitioner; and
    o                (f) is conducted from accommodation physically divided from, and clearly
                     differentiated from that of any participating firm.

o

    A "participating firm" means a recognised sole practitioner, recognised body or authorised
    non-SRA firm which is a manager or owner of the SEAL, or one or more of whose managers
    or owners is a manager or owner of the SEAL.

    3.13 Conditions for acting under 3.11

    In order to act for seller and buyer under 3.11 above, the following conditions must be met:

          (a) the written consent of both parties must be obtained;
          (b) no conflict of interests must exist or arise;
          (c) the seller must not be selling or leasing as a builder or   developer;

          (d) different individuals must conduct the work for the seller and the work for the buyer
           and, if these individuals need supervision, they must be supervised by different
           individuals who are authorised to do the work;
          (e) you must inform the seller in writing, before accepting instructions to deal with the
           property selling, of any services which might be offered to a buyer, whether through the
           same firm or any associated firm; and

          (f)   you must explain to the buyer, before the buyer gives consent to the arrangement:
o                    (i) the implications of a conflict of interests arising;
o                    (ii) your financial interest in the sale going through; and

    o                (iii) if
                           you propose to provide mortgage related services to the buyer through a
                     SEAL which is also acting for the seller, that you cannot advise the buyer on the
                     merits of the purchase.
    3.14 Special circumstances in property selling and conveyancing

    If any of the circumstances set out in 3.09 apply (established clients; consideration of
    £10,000 or less; representation by two separate offices), you may sell the property, provide
    mortgage related services, and act for seller and buyer in the conveyancing, subject to the
    prohibition in 10.06(3) and (4) and compliance with the conditions set out in 3.10 and 3.13
    as appropriate.

    3.15 Conflict arising when acting for seller and buyer

    If a conflict arises during the course of a transaction in which you are acting for more than
    one party, you may continue to act for one of the parties only if the duty of confidentiality to
    the other party is not at risk.

    3.16 Acting for lender and borrower in conveyancing transactions

          (1) Rules 3.16 to 3.22 cover the grant of a mortgage of land and are intended to avoid
           conflicts of interests. "Mortgage" includes a remortgage. Both commercial and
           residential conveyancing transactions are covered. "You" is defined in 23.01, but is to be
           construed in 3.16 to 3.22 as including an associated firm (see rule 24 (Interpretation)
           for the meaning of "associated firms").
          (2) You must not act for both lender and borrower on the grant of a mortgage of land:

o                    (a) if a conflict of interests exists or arises;
o                    (b) on the grant of an individual mortgage of      land at arm's length;

    o                (c) if, in the case of a standard mortgage of property to be used as the borrower's
                     private residence only, the lender's mortgage instructions extend beyond the
                     limitations contained in 3.19 and 3.21, or do not permit the use of the certificate
                     of title required by 3.20; or
    o                (d) if, in the case of any other standard mortgage, the lender's mortgage
                     instructions extend beyond the limitations contained in 3.19 and 3.21.

    3.17 Standard and individual mortgages

          (1)   A mortgage is a "standard mortgage" where:
o                   (a) it is provided in the normal course of the lender's activities;
o                   (b) a significant part of the lender's activities consists of lending; and
o                   (c) the mortgage is on standard terms.

    An "individual mortgage" is any other mortgage.

          (2) A mortgage will not be on standard terms if material terms in any of the documents
           relating to the mortgage transaction are negotiated between the lender's and borrower's
           lawyers contemporaneously with effecting the mortgage. In commercial transactions, the
           element of negotiation will often relate to the facility letter or facility agreement rather
           than the mortgage deed itself.
          (3) Provided there has been no contemporaneous negotiation of material terms between
           the parties' lawyers, a mortgage will be on standard terms where the lender uses a
           prescribed form of mortgage deed. Minor variations, such as the usual clause limiting
           the liability of trustee mortgagors, are not regarded as material and do not alter the
           nature of these terms as standard.
          (4) In addition to its normal standard terms, a lender may have a different set or sets of
           standard terms applicable to specialised types of borrower, such as registered social
           landlords. Provided these terms are applied by the lender to all equivalent specialist
           borrowers or have been agreed between the lender and a specialist borrower as
           applicable to all transactions between them, they will constitute standard terms for the
           purposes of 3.16 to 3.22.
          (5) The lender and the borrower must be separately represented on the grant of an
           individual mortgage at arm's length (see 3.16(2)(b)). Rules 3.16 to 3.22 are not then
           applicable.
          (6) You may act for both lender and borrower in a standard mortgage (see 3.16(2)(c) to
           (d)), provided:

o                   (a) there is no conflict of interests;
o                   (b) the mortgage instructions do not     go beyond the limits set out in 3.19; and

    o               (c) in the case of a property to be used solely as the borrower's private residence,
                    the approved certificate of title set out in the annex to rule 3 is used.
          (7) The limitations of 3.19 also apply to a standard mortgage where the lender and the
           borrower are separately represented (see 3.22(1) which includes certificates of title).
           However, 3.22(2) allows the borrower's lawyer, in a transaction where the property is
           not to be used solely as the borrower's private residence, to give a certificate of title in
           any form recognised by the Solicitors Regulation Authority Board. You also remain free
           to give any other form of certificate which complies with this rule.
          (8) There may be cases where the lapse of time between the mortgage offer and
           completion (for example, when new properties are added) results in use of an earlier
           edition of a recognised certificate. That is acceptable.

    3.18 Notification of certain circumstances to lender

          (1) If you wish to act for both lender and borrower on the grant of a standard mortgage
           of land, you must first inform the lender in writing of the circumstances if:

o                   (a)   the prospective borrower is:

                             (i) the firm or any of its managers or owners, or a member of their
                              immediate family;
                             (ii) an associated firm, any of its managers or owners, or a member of
                              their immediate family; and/or
                             (iii) the individual conducting or supervising the transaction, or a
                              member of their immediate family; or

o                 (b) you propose to act for seller, buyer and lender in the same transaction.
          (2) "Immediate family" means spouse, children, parents, brothers and sisters.

    3.19 Types of instruction which may be accepted

    If acting for both lender and borrower in a standard mortgage, you and the individual
    conducting or supervising the transaction may only accept or act upon instructions from the
    lender which are limited to the following matters:


o       (a)

                  (i)taking reasonable steps to check the identity of the borrower (and
                  anyone else required to sign the mortgage deed or other document
                  connected with the mortgage) by reference to a document or documents,
                  such as a passport, precisely specified in writing by the lender;
                 (ii) following the guidance given by the Law Society or the Solicitors
                  Regulation Authority on property fraud and on money laundering;
                 (iii) checking that the seller's conveyancers (if unknown to you) appear
                  in a current legal directory or hold practising certificates issued by their
                  professional body; and
                 (iv) in the case of a lender with no branch office within reasonable
                  proximity of the borrower, carrying out the money laundering checks
                  precisely specified in writing by the lender;
    o   (b) making appropriate searches relating to the property in public registers (for
        example, local searches, commons registration searches, mining searches), and
        reporting any results specified by the lender or which you consider may
        adversely affect the lender; or effecting search insurance;
    o   (c) making enquiries on legal matters relating to the property reasonably
        specified by the lender, and reporting the replies;
    o   (d) reporting the purchase price stated in the transfer and on how the borrower
        says that the purchase money (other than the mortgage advance) is to be
        provided; and reporting if you will not have control over the payment of all the
        purchase money (other than a deposit paid to an estate agent or a reservation fee
        paid to a builder or developer);
    o   (e) reporting if the seller or the borrower (if the property is already owned by
        the borrower) has not owned or been the registered owner of the property for at
        least six months;
    o   (f) if the lender does not arrange insurance, confirming receipt of satisfactory
        evidence that the buildings insurance is in place for at least the sum required by
        the lender and covers the risks specified by the lender; giving notice to the
        insurer of the lender's interest and requesting confirmation that the insurer will
        notify the lender if the policy is not renewed or is cancelled; and supplying
        particulars of the insurance and the last premium receipt to the lender;
    o   (g) investigating title to the property and appurtenant rights; reporting any
        defects revealed, advising on the need for any consequential statutory
        declarations or indemnity insurance, and approving and effecting indemnity
        cover if required by the lender; and reporting if you are aware of any rights
        needed for the use or enjoyment of the property over other land;
    o   (h) reporting on any financial charges (for example, improvement or repair
        grants or Housing Act discounts) secured on the property revealed by your
        searches and enquiries which will affect the property after completion of the
        mortgage;

o       (i)   in the case of a leasehold property:

                  (i) confirming that the lease contains the terms stipulated by the lender
                   and does not include any terms specified by the lender as unacceptable;
                  (ii) obtaining a suitable deed of variation or indemnity insurance if the
                   terms of the lease are unsatisfactory;
                 (iii) enquiring of the seller or the borrower (if the property is already
                  owned by the borrower) as to any known breaches of covenant by the
                  landlord or any superior landlord and reporting any such breaches to the
                  lender;
                 (iv) reporting if you become aware of the landlord's absence or
                  insolvency;
                 (v) making a company search and checking the last three years'
                  published accounts of any management company with responsibilities
                  under the lease;
                 (vi) if the borrower is required to be a shareholder in the management
                  company, obtaining the share certificate, a blank stock transfer form
                  signed by the borrower and a copy of the memorandum and articles of
                  association;
                 (vii) obtaining any necessary consent to or prior approval of the
                  assignment and mortgage;
                 (viii) obtaining a clear receipt for the last payment of rent and service
                  charge; and
                 (ix) serving notice of the assignment and mortgage on the landlord;

o       (j)   in the case of a commonhold unit:

                 (i) confirming receipt of satisfactory evidence that common parts
                  insurance is in place for at least the sum required by the lender and
                  covers the risks specified by the lender;
                 (ii) confirming that the commonhold community statement contains the
                  terms specified by the lender and does not include any restrictions on
                  occupation or use specified by the lender as unacceptable;
                 (iii) enquiring of the seller (or the borrower if the property is already
                  owned by the borrower) and the commonhold association as to any
                  known breaches of the commonhold community statement by the
                  commonhold association or any unit-holder, and reporting any such
                  breaches to the lender;
                 (iv) making a company search to verify that the commonhold
                  association is in existence and remains registered, and that there is no
                  registered indication that it is to be wound up;
                 (v) obtaining the last three years' published accounts of the
                  commonhold association and reporting any apparent problems with the
                  association to the lender;

                 (vi)    obtaining a commonhold unit information certificate; and

                 (vii)
                      serving notice of the transfer and mortgage of the commonhold unit
                 on the commonhold association;
    o   (k) if the property is subject to a letting, checking that the type of letting and its
        terms comply with the lender's requirements;
    o   (l) making appropriate pre-completion searches, including a bankruptcy search
        against the borrower, any other person in whom the legal estate is vested and
        any guarantor;
    o              (m)  receiving, releasing and transmitting the mortgage advance, including
                   asking for any final inspection needed and dealing with any retentions and
                   cashbacks;
    o              (n) procuring execution of the mortgage deed and form of guarantee as
                   appropriate by the persons whose identities have been checked in accordance
                   with any requirements of the lender under (a) above as those of the borrower,
                   any other person in whom the legal estate is vested and any guarantor; obtaining
                   their signatures to the forms of undertaking required by the lender in relation to
                   the use, occupation or physical state of the property; and complying with the
                   lender's requirements if any document is to be executed under a power of
                   attorney;
    o              (o) asking the borrower for confirmation that the information about occupants
                   given in the mortgage instructions or offer is correct; obtaining consents in the
                   form required by the lender from existing or prospective occupiers of the
                   property aged 17 or over specified by the lender, or of whom you are aware;
    o              (p) advising the borrower on the terms of any document required by the lender
                   to be signed by the borrower;
    o              (q) advising any other person required to sign any document on the terms of that
                   document or, if there is a conflict of interests between that person and the
                   borrower or the lender, advising that person on the need for separate legal advice
                   and arranging for them to see an independent conveyancer;
    o              (r) btaining the legal transfer of the property to the mortgagor;
    o              (s) procuring the redemption of:
                           (i) existing mortgages on property the subject of any associated sale of
                            which you are aware; and
                           (ii) any other mortgages secured against a property located in England
                            or Wales made by an identified lender where an identified account
                            number or numbers or a property address has been given by the lender;
    o              (t) ensuring the redemption or postponement of existing mortgages on the
                   property, and registering the mortgage with the priority required by the lender;
    o              (u) making administrative arrangements in relation to any collateral security,
                   such as an endowment policy, or in relation to any collateral warranty or
                   guarantee relating to the physical condition of the property, such as NHBC
                   documentation;

o                  (v)   registering the transfer and mortgage;

    o              (w)  giving legal advice on any matters reported on under 3.19, suggesting
                   courses of action open to the lender, and complying with the lender's
                   instructions on the action to be taken;
    o              (x) disclosing any relationship specified by the lender between you and the
                   borrower;
    o              (y) storing safely the title deeds and documents pending registration and
                   delivery to or as directed by the lender; and
    o              (z) retaining the information contained in your conveyancing file for at least six
                   years from the date of the mortgage.

    3.20 Using the approved certificate of title
    In addition, if acting for both lender and borrower in a standard mortgage of property to be
    used as the borrower's private residence only:


    o               (a) you must use the certificate of title set out in the annex to rule 3 (below)
                    ("the approved certificate"); and
    o               (b) unless the lender has certified that its mortgage instructions are subject to the
                    limitations contained in 3.19 above and 3.21 below, you must notify the lender
                    on receipt of instructions that the approved certificate will be used, and that your
                    duties to the lender are limited to the matters contained in the approved
                    certificate.

    3.21 Terms of rule to prevail

    The terms of 3.16 to 3.20 above will prevail in the event of any ambiguity in the lender's
    instructions, or discrepancy between the instructions and 3.19 above or the approved
    certificate.

    3.22 Anti-avoidance

          (1) Subject to (2) below, if acting only for the borrower in a standard mortgage of
           property you must not accept or act upon any requirements by way of undertaking,
           warranty, guarantee or otherwise of the lender, the lender's lawyer or other agent which
           extend beyond the limitations contained in 3.19.
          (2) Provided the property is not to be used solely as the borrower's private residence, (1)
           above does not prevent you from giving any form of certificate of title recognised from
           time to time by the Solicitors Regulation Authority Board (a "recognised certificate").
           Additions or amendments which arise from the individual transaction may be made to
           the text of a recognised certificate but, to the extent to which they create an increased or
           additional obligation, must not extend beyond the limitations contained in 3.19.

    3.23 Waivers

    In spite of 22.01(1) (Waivers), the Solicitors Regulation Authority Board shall not have
    power to waive any of the provisions of 3.01 to 3.05.

								
To top